I’d say dogs kmow when they’re intending to be bad, such as stealing food, going in places they’re not allowed whilete think their owner isn’t home or when they generally think they’re yet to be caught being bad, they act mischievously. I’d also say that it’s the intention to be bad that is naughty, and dogs are very capable of that.

I think the difference is that dogs can think “hoohoo I’m gonna be bad >:)” which is a naughty thought, and means they understand it, but they can’t go to that next point where cats are which is “I’m gonna do something naughty and I don’t even care about the bad bit at all”.